TMFDeej (99.47)

A growth stock trading like a value stock

June 14, 2010 – Comments (8) | RELATED TICKERS: BDX

I have a love / hate relationship with Barron's. I love the idea of getting an old-school weekly newspaper on investing delivered to my driveway every Saturday morning (or Sunday morning if my lazy delivery person decides to go to the beach that day, grumble, grumble). However, more often than not I find Barron's lacking in quality investment ideas. This week's issue actually wasn't bad. I expected to find a lot of great investment ideas in its semi-annual Roundtable, but alas it was pretty weak and I did not. I did however find an interesting article in another section of the paper, 

A Booster Shot for Sluggish times

I added shares of Becton Dickinson (BDX) to my CAPS portfolio around a month ago while looking for high quality healthcare companies that I believe have been unfairly punished by the uncertainty in the sector. The company's stock is down nearly 9% since then.

Becton Dickinson is a supplier of things like syringes, needles, blades, and testing equipment for the medical industry. The great thing about BDX is that a large chunk of its products not only are non-discretionary but they also must be disposed of after use, creating a huge stream of recurring revenue.

As I mentioned, the performance of BDX's stock has been pretty bad of late. It is down 11% thus far in 2010. That's actually a good thing for people who don't currently own the stock or who are interested in adding to their positions. BDX now trades at a paltry 12 times its estimated earnings for 2010. Compare that to the average multiple of 25 in the sector that the company competes in or the 19 times that it has traditionally traded at.

Not only is BDX cheap, but it pays a dividend as well...and I love dividends. While its divvy isn't huge, it is around 2%, I expect this number to grow steadily in the future as Becton Dickinson rolls out new products like its BD Max diagnostic machine, and continues to operate more efficiently. The company has boosted its margins by half a percent annually for the past several years.

Many analysts think that BDX will receive a nice boost in revenue in the coming years from demographic trends, specifically an increase in diabetes cases in an aging global population and people in emerging markets that increase their consumption of junk food.

BDX certainly faces some headwinds, including the recent weakness of the Euro, but there's a lot to like about the company. The title of this post refers to the description that one fund manager gave of the company.  Now, I don't know that I'd call BDX a growth company but I do like its prospects. As the famous fund manager Don Yacktman put it in the Barron's article:

"As you age, you need more medical care, and there will be more demand for the kind of products that Becton provides. to be honest, because of the recent market decline, someone buying Becton today is getting the stock for less than our price. We like it more now."

Deej